2
Commodity Products Consumer (or buyer) doesn’t care who made commodity products Commodity products are sold on price Quality matters but many sellers can provide a given quality Producers have very little customer loyalty Barriers to entry low – at least in comparison

3
Differentiated Products These products have a distinct identity The manufacturer has some control over the price It need not sell for the same price as the competitor’s price Keys to success are product characteristics Entry very difficult

13
Inputs Inputs are commodity products Input supplier power is very low

14
Cereal Company Power Moderate Sole source of branded products Some essential to store Yet Kellogg needs store just like store needs Kellogg Store has more power for new products

15
Supermarket’s Power Supermarket’s power is medium Is increased by supplier dependence on –Distribution channels –Shelf space –Consumers –Advertisements Is decreased by buyer’s need for –Cereal products –Other food items produced by the companies

16
Threat of Substitutes Threat of substitutes is medium The threat is increased by –Increased pace of life –Fast food alternatives –Fewer people eating breakfast –Fewer manual jobs The threat is decreased by –Health Awareness –Company Diversification

17
Threat of New Entrants The threat of new entrants is very low Barriers to entry include –Economies of scale –Product differentiation –Capital requirements –Buyer switching costs –Access to distribution channels –Brand proliferation

21
The Kellogg Company W.K. Kellogg ran a health resort where (Kellogg’s claims) cereal was invented Today, they are the world’s second largest producer of cereal

22
Strengths Knowledge –In 95 th year of producing cereal commercially –Founded by the (claimed) creator of cereal –Invested a lot of resources in R&D Brand Name –Great reputation –Tony the Tiger, Snap, Crackle, and Pop

23
Post Cereal Company Postum Cereal company started in 1895 by C.W. Post. Grape-Nuts introduced in 1897 Post now ranks 3 rd in industry in market share. Post took initiative in 1996 by lowering prices an average of 20 percent

24
Strengths Established Since 1901 Diversified –Gatorade, Rice A Roni, Aunt Jemima Nutrition Late entrant to cold cereals Part of PepsiCo since 2001